"I think there is a great skepticism about the market's ability to rally," said Kenneth Tower, chief market strategist at CyberTrader. "So any small excuse out there causes the buyers to sit on the sidelines and make some of those who are nervous go out and buy some puts that hedge their portfolios against what they assume is going to be a loss going forward," he said.

Weighing on stocks were rumors swirling that a couple of hedge funds were facing trouble as a result of their exposure to General Motors Corp.
GM, -2.10%
bonds. Ratings agency Standard & Poor's cut its credit rating on the world's largest automaker last week to "junk" status. See related story.

"No one likes those types of rumors -- and even though we've been up the last few days, and there's been a decent tone -- the market is not in that 100% bullish tone that it can't be affected by news like this at any time," said Jay Suskind, director of trading at Ryan Beck & Co.

"I think there's a lot of concern out there that where there's smoke there's fire as far as these hedge fund rumors, and what does it mean for the rest of the market and is there another shoe to drop type of thing," added Suskind.

Deutsche Bank
DB, -3.52%
slid 3.3% amid talk that the bank is the prime broker for one of the hedge funds that's under duress. A London-based spokeswoman wouldn't comment on the rumors.

QVT Financial L.P., investment manager of the QVT Funds, said speculation that a QVT hedge fund was one of those in trouble is "categorically untrue." See full story.

Alcoa said in a filing with the Securities and Exchange Commission that declining build rates at General Motors and Ford Motor Co.
F, -1.48%
would be a negative in the second quarter. Overall, the aluminum giant said it continues to be optimistic about its second-quarter performance. Alcoa shares lost 2.5%.

Shares of 3M fell 1.4% even though the industrial giant reaffirmed its 2005 outlook for earnings of $4.15 to $4.25 a share on sales growth of 5% to 8%.

American International Group Inc.
AIG, -2.06%
down 2.4%, was also a notable decliner. The Wall Street Journal reported that knowledge of and participation in questionable "top-level" accounting adjustments at the company may extend beyond former Chief Executive Maurice "Hank" Greenberg and former Chief Financial Officer Howard I. Smith. Read more.

Only Boeing Co.
BA, -0.84%
and General Motors managed to close in the plus column on the Dow.

Boeing gave back a good part of its earlier gains but remained up 0.8% after it said it would sell six of its 737-700s to General Electric Commercial Aviation Services, a unit of General Electric Co. Boeing indicated that the latest GE
GE, -1.39%
order carried a list price of $300 million. See full story.

GM, meanwhile, climbed 0.6%. Late Monday, the company, which last week saw its credit rating cut to "junk" status, said it had made no changes to its dividend, declaring the regular 50 cents a share dividend on its common shares.

In the broader market, decliners outnumbered advancers 11 to 5 on the New York Stock Exchange and by 2 to 1 on the Nasdaq. Big Board volume was more than 1.46 billion shares while more than 1.62 billion shares traded on the Nasdaq.

CyberTrader's Tower saw the pullback as a chance to do some buying.

"I wouldn't be at all surprised that some hedge funds are in trouble, but should this cause any sort of market decline beyond the first couple hours of trading? I don't think so," said Tower. "I'm definitely looking at this as a buying opportunity."

Tower said he sees this kind of negative sentiment as actually being quite bullish, because those who are now sitting on the sidelines represent buying power than can come in and push the market higher.

Rounding out other markets, the June crude contract closed up just 4 at $52.07 a barrel on the New York Mercantile Exchange after touching an intraday peak of $53.10. See Futures Movers.

Treasurys, meanwhile, bounced after recent losses. The yield on the benchmark 10-year note fell to 4.22%. See Bond Report.

The dollar was down 0.2% against the euro at $1.2870 and down 0.2% against the Japanese yen at 105.58. See Currencies.

Focus stocks

Delta Air Lines Inc.
DAL, -5.19%
skidded 10% after the troubled carrier forecast a "substantial loss" for the rest of the year, and said cash flow from operations "will not be sufficient to meet all of our liquidity needs for that period." See full story.

Motorola Inc.
MSI, -1.20%
was upgraded to overweight from equal weight at Lehman Brothers, which cited solid trends in its core handset business. The broker also believes the company may be poised to announce a significant share buyback. Motorola shares added 0.1%. See the Ratings Game.

Cisco Systems Inc.
CSCO, -4.02%
was unchanged ahead of its latest quarterly results. After the bell the company said it made 23 cents a share for the latest period, a penny ahead of estimates. See related story.

In the retail space, Great Atlantic & Pacific Tea Co.
GAP, -0.72%
announced plans for a "major" restructuring of operations, in which it will dispose of operations in Ohio and Michigan and consider options for the possible sale of A&P Canada.

In addition, A&P reported financial results which it called the company's "best quarterly performance in almost three years." A&P shares surged 23%. See full story.

Fossil Inc.
FOSL, -1.15%
missed forecasts, posting adjusted earnings of 19 cents a share below the average Wall Street forecast of 26 cents a share, due to slowdown in certain European markets. The Richardson, Texas-based watch and accessory company also lowered its outlook for the second quarter and for all of 2005.

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